When Christine Lagarde, the managing director of the International Monetary Fund, IMF, visited the country last week to have discussion on the country’s economic reforms and objectives of the present government, she saw not only an economy struggling but also a national budget (2016 budget) that requires fixing. Some economists BDSUNDAY spoke to say she also saw a government in denial of the economy’s peril.
The four-day visit highlighted the growing concerns of global lenders and investment community as well as the amazement at what most analysts call the ‘blurred’ direction of the government as reform options dwindles amid erratic global oil prices.
Lagarde underscored business displeasure and frustration when she announced she was going to send her team to the country to revisit the country’s economic strategy and direction.
“A team of economists are going to come here next week (this week) to review and audit the budget and have a good discussion with the government to really assess whether the debt is sustainable, whether the borrowing costs are sensible and what strategy must be put in place in order to address challenges going forward,” she told a perplexed group of reporters and government officials.
As oil traders delivered their verdict weekend, Brent the global benchmark, was still sleepwalking and threatening to tip below the $30 a barrel, the worst in almost three months and since Saudi Arabia and Iran resisted calls for production restraints. This is far below the proposed $38 a barrel benchmark for the 2016 budget. Nomura Holdings Inc Thursday projected a $30 per barrel Brent oil in the next 10 days while UBS Group AG sees an oversupply pushing prices even lower. So, the country is hobbling hopelessly towards monthly oil revenue of less than N150 billion if it gets that low.
Most forecasts suggest the Nigerian economy will grow at 3.5 percent (Bismarck Rewane, Financial Derivatives, FDC) and 4.3 percent (IMF projection) in 2016. These are projections that are well below the long term known trend of 7 percent per annum growth. The disappointing projections and growth, if combined with the current financial stress, could sharply push the growth in 2016 down further. Already, the external reserve is down 13.31 percent to $29.9bn and the country is witnessing a steady increase in inflation, reckoned to be around 8.5 percent by economists.
Alongside these weakening data is the weakening financial market that has witnessed capital retreating rapidly back towards havens in the developed world. The market tumbled by about -5 percent in the first 3 days of trading into the year (2016). In 2015 it generated negative returns of -19 percent in response to the global oil market, the Central Bank of Nigeria’s CBN, foreign exchange control response to the Naira erratic ailment and depleting reserves-all of which combined, has placed the market at higher risk.
A close associate of BusinessDay told BDSUNDAY that business reaction to the President Buhari’s administration response to these stockpile of ‘red’ figures is contemptuous. He said that business see it as ‘irresponsible.’ “It’s either he does not understand what they represent or he simply does not think they reflect danger over all for the country and so have no decisive answers.”
“A string of businesses are increasingly coming under foreign exchange stress, banks with foreign obligations are dithering and oil companies insurance obligations are taking a hit because nobody wants to cover them anymore,” he said. “Business executives in the country are tearing their hairs out,” he added.
A BDSUNDAY investigation into the impact of the foreign exchange stress and the federal government, particularly the Central Bank of Nigeria, CBN, response, can authoritatively reveal that a big flourmill company in Lagos is on the verge of closure because they can’t source enough foreign exchange to operate.
“They used to get $80 million foreign exchange for their raw material inputs but as I speak, they are getting just about $2 million,” a close source to the company which supplies about 70 percent of flour input to bread making in the country, said. The company, which has been in existence in the country for about 50 years and with a milling capacity of over 6,000 metric tons per day, has already downsized considerably and shut down most of its plants.
Online shopping firms are some of the most starved firms on foreign exchange restriction that has been in place since March of 2015. They too are closing shop gradually because they can’t sell or buy their goods, which often are foreign exchange related, online payments.
Globally, analysts are sending worrying signals to their clients on the strangulating impact of the foreign-exchange restrictions. One analysts told BDSUNDAY; “I tell my clients it doesn’t make sense to put down money in the country on current environment,’ referring to difficulties in understanding the opaque forex regime and policy direction of the government.
“You bring in money, you can’t take out your profit. Even Nigerian investors can’t bring in their dollar anymore. No one is prepared to hedge in Naira for you and the options for devaluation are running and benefit fizzling out.”
Following conversation with some All Progressives Congress, APC, members on the strident criticisms of the party led administration, BDSUNDAY found also growing backlash from amongst the ranks, who say they are ‘disturbed’ at the total jettisoning of the party promises/manifestoes of the 2015 general elections. Many are already blaming the President for the impending demise of the party in the next general election.
But most worrying for economist is the complete silence on the Transition Committee recommendations on how to fast track the economy in the administration’s first 100 days and beyond. The recommendations were either fresh or improvements on the party’s already existing manifestoes and they referenced all key sectors of the economy.
For instance, contained in a document exclusively obtained by BDSUNDAY is the 100 days priority recommendation by the committee for the real sector (Manufacturing and Distribution) which urged quick focus on “simple equation that cuts across the value chain,” these include immediate presidential or executive order on increase in Agribusiness funding and guaranteed price for farmers, access to gas for power, reduction in distribution costs through paved roads and rail.
There are also recommendations for the energy and power sectors that specified short-term objectives that includes, stabilization of power through reduction in pipeline vandalization, resolving immidiately issues in and around the NIPP privatization, Azura—(Put Call Option Agreement), the Aba IPP as well as respect for existing contractual agreements and total commitment to reforms in the sector. It also recommended a quick action to give additional guarantees or backstop for Nigeria Bulk Electricity Trading, NBET. The work on the gas supply initiative is still pending, at least there are no known pronouncements on that yet and there are no known actions yet to accelerate transmission works related to the National Integrated Power Projects, NIPP, plants which industry watchers view as a major catalyst for industrialization in the country.
The administration’s mixed messages on fuel subsidy and electricity, security and corruption have not inspired confidence that it is uniquely sprinting ahead with even what some economists call the ‘low hanging fruits’ or the quick win steps.
“There is no doubt that the eyes of the world are now sharply focused on the risks and challenges the country presents,” says one analyst in Lagos, highlighting concerns that the country’s economic prospects are deteriorating rapidly. He like some top business executives in the country, who have become exasperated by the administration’s confusing reform wishlist, wants to see timetable set for delivering on key economic reform agenda.
CHARLES IKE-OKOH
